Despite being based in a region prone to disruption, Gulf Co-operation Council (GCC) banking systems have remained remarkably stable, S&P Global Ratings has said in a report.
In its latest report, S&P Global Ratings noted the largest funding item – private domestic deposits – has increased year-on-year over the past three decades despite a series of disruptive regional events, including Yemeni civil wars, the Arab Spring uprisings, the Iraq War, and several Houthi missile attacks.
Only the 1990 Gulf War led to a decline in private sector domestic deposits and, while external funding has proven less stable, related withdrawals has only been temporary.
“To test this resilience, we analysed GCC bank performance in a series of hypothetical stress scenarios,” S&P Global Ratings said.
"While the nature of the threat or shock – for example whether there is a direct physical threat – is clearly important, we think various factors explain the historical resilience of GCC bank funding. Notably, large outward remittances have reduced the stock of potentially less stable deposits and confidence boosting actions by public sector entities have helped reduce domestic funding volatility during shocks," said S&P credit analyst Benjamin Young.
"Even though some vulnerabilities are on the rise, including continued external funding growth, a potentially increasing proportion of expatriate deposits, and reduced coverage from potentially supportive sovereign assets to funding bases, our hypothetical stress scenarios show that GCC banks can withstand substantial external funding outflows without additional support."
In its latest report, S&P Global Ratings noted the largest funding item – private domestic deposits – has increased year-on-year over the past three decades despite a series of disruptive regional events, including Yemeni civil wars, the Arab Spring uprisings, the Iraq War, and several Houthi missile attacks.
Only the 1990 Gulf War led to a decline in private sector domestic deposits and, while external funding has proven less stable, related withdrawals has only been temporary.
“To test this resilience, we analysed GCC bank performance in a series of hypothetical stress scenarios,” S&P Global Ratings said.
"While the nature of the threat or shock – for example whether there is a direct physical threat – is clearly important, we think various factors explain the historical resilience of GCC bank funding. Notably, large outward remittances have reduced the stock of potentially less stable deposits and confidence boosting actions by public sector entities have helped reduce domestic funding volatility during shocks," said S&P credit analyst Benjamin Young.
"Even though some vulnerabilities are on the rise, including continued external funding growth, a potentially increasing proportion of expatriate deposits, and reduced coverage from potentially supportive sovereign assets to funding bases, our hypothetical stress scenarios show that GCC banks can withstand substantial external funding outflows without additional support."